The Dow Jones dived a further 350 points yesterday, giving America’s key economic benchmark its worst June performance since the Great Depression, as oil hit a record and analysts said that the fallout from the credit crunch was far from over.

Citigroup’s shares fell by $1.18, or 6.26 per cent, to $17.67 in New York, their lowest since October 1998, after William Tanona, a Goldman Sachs analyst, tripled the net loss he expects the group to make in its second quarter to 75 cents a share, or $3.75 billion (£1.9 billion).

Shares in Merrill Lynch tumbled by $2.41, or 6.8 per cent, to $33.05, as Brad Hintz, an influential analyst with Sanford Bernstein, changed his second-quarter forecast for the group from an 82 cents a share profit to a loss of 93 cents a share, or $832 million.

The banks’ woes helped to push down the Dow Jones industrial average by 358.40, or 3 per cent, to 11,453.4, its lowest level since September 2006. Yesterday’s decline means the Dow is 9.4 per cent down this month, its worst percentage drop for June since the 18 per cent reduction recorded in June 1930.

A fall of $1.38, or 11 per cent, in shares of General Motors, to $11.43 spooked investors further after a note from Goldman Sachs advised selling stock in the largest US carmaker. GM’s shares are at their lowest since 1954.

Goldman Sachs’s change of heart on GM was prompted, in part, by a rise of $5.09, or 3.08 per cent, in the price of a barrel of crude oil in New York to a record of $139.64 as Libya threatened to cut its output.

Furthermore, Chakib Khelil, the Opec president, said that oil could hit $170 a barrel over the summer if, as expected, the European Central Bank increases interest rates, in a move that would further depress the dollar.

Investors were offered some respite after the markets closed, as reports emerged that the Federal Reserve was exploring ways to make it easier for private equity firms to invest in banks.

Strict regulations effectively prohibit private equity firms from making significant investments in banks by imposing onerous requirements on them. However, these firms are sitting on billions of dollars of cash when banks need new capital to stem huge losses that have resulted from taking hefty writedowns on loans and investments in mortgage-related securities.

Under federal law, any party wishing to own more than 24.9 per cent of a bank must register as a bank holding company, subjecting it to heavy regulation and a huge financial commitment if the bank gets into difficulties. A holding of 9.9 per cent also subjects the investor to a huge level of scrutiny. It is understood that although the Fed cannot overturn these laws it can be far more lenient in their interpretation.

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